We are confident that in Asia’s march of progress in this century, both our countries [Sri Lanka and India] will be in the lead, complementing each other, stated Sri Lankan High Commissioner to India Prasad Kariyawasam.
He said so at the Seminar on “Business Development and Investment Opportunities in Sri Lanka”, GITAM University, organised by the Andra Chamber of Commerce, Visakhapatnam, 26 February 2011.
Inspired by civilizational links since time immemorial, the relationship between India and Sri Lanka has now reached a position of irreversible excellence. The two countries are natural allies, he said, adding the two countries have proceeded to renew and reinvigorate age old cultural, commercial and strategic links for the mutual benefit of their peoples.
Both economies grow at very high rates, India becoming a leading economy in Asia, and one of the most exciting emerging markets in the world. Sri Lanka’s economy is growing fast and emerging as an attractive investment destination since the conclusion of the armed conflict in May 2009, the High Commissioner said.
‘The post-conflict era in Sri Lanka has opened up new opportunities and space for further enhancing multifaceted relations with India’.
‘As a result of progressive liberalization of the economy for over three decades, Sri Lanka is considered as an intrinsically friendly destination for foreign investors. So much so that Sri Lanka is ranked as the most liberalized economy in South Asia... Sri Lanka is considered the region’s leading reformer of business regulation’, he added.
Following are excerpts of the address by High Commissioner Prasad Kariyawasam
Centuries have since passed by, but the geographical importance of Sri Lanka, especially for maritime trade, has not changed. The country maintains its locational and therefore strategic advantage with close proximity to the shipping lanes linking the East and the West, the Rim countries in the Indian Ocean and Australasia. An overwhelming amount of world sea cargo traverses through the international sea lane just south of Sri Lanka. In fact 90% global commerce is sea borne, 65% oil transportation is sea dependent, and most of that just passes by Sri Lanka, through the world’s busiest shipping lane.
Inspired by such civilizational links since time immemorial, the relationship between India and Sri Lanka has now reached a position of irreversible excellence. The two countries are natural allies. Our future, just as our past, is intertwined and our two countries will therefore continue to march in tandem with the clear objectives of promoting prosperity, peace and security, both within the region and beyond.
India and Sri Lanka share common values and traditions as well as a common commitment to democratic governance.
In modern times, having emerged from the colonial yoke, India in August 1947 and Sri Lanka just five months later in February 1948, our countries have taken a similar trajectory in international relations. The two independent nations of India and Sri Lanka have proceeded to renew and reinvigorate age old cultural, commercial and strategic links for the mutual benefit of their peoples.
In recent years, this multifaceted relationship has reached new heights marked by close contacts at the highest level with important visits taking place between the two countries at regular intervals especially since the end of the armed conflict in Sri Lanka. President Mahinda Rajapaksa was in India twice last year, first in June 2010 as a visiting State Guest soon after his re-election for a second term in office, and later as the Guest of Honour at the concluding ceremony of the XIX Commonwealth Games in New Delhi.
With the passage of time and increasing globalization, relations between India and Sri Lanka have matured and diversified, encompassing all areas of contemporary relevance. In this process, business and economic ties stand as the most significant. Both economies grow at very high rates, India becoming a leading economy in Asia, and one of the most exciting emerging markets in the world. Sri Lanka’s economy is growing fast and emerging as an attractive investment destination since the conclusion of the armed conflict in May 2009.
The post-conflict era in Sri Lanka has opened up new opportunities and space for further enhancing multifaceted relations with India. Rehabilitation and reconstruction work in the former conflict affected regions of the country is progressing rapidly. Measures are also being taken for reconciliation and to provide restorative justice with a view to consolidating the hard won peace. India is contributing towards the reconstruction and rehabilitation process by participating in projects to the tune of 1.2 billion dollars. The Government and the people of India continue to stand by the people of Sri Lanka through this important phase in our country and this, we value deeply.
Despite the many external and domestic challenges over a period of 30 years, the Sri Lankan economy managed to weather the storm and remain resilient even during the conflict period. This enabled a quick recovery of the economy as soon as the conflict came to an end in May 2009. From 2005 to 2008, Sri Lanka recorded an average economic GDP growth of 6% or over. Low growth of 3.5% recorded in 2009 is attributed to the downturn in major economies and heightened security concerns arising from the escalation of the conflict in the North during the first half of 2009. With the conclusion of the conflict in May 2009, Sri Lanka was able to record a growth of 8% in 2010.
A recent Asian Development Bank report credited the strong growth in Sri Lanka to a buoyant private sector and sound macro-economic policies. According to the Economist Intelligence Unit, Sri Lanka is now the ‘second fastest growing economy in Asia’. The IMF has upgraded Sri Lanka to a ‘middle income emerging market’ status.
The service sector of the country remains the largest component of the GDP. At 59.4 per cent, the service sector continues its strong expansion, fueled primarily by strong growth in telecom, trading, financial services and tourism. Industry accounts for 28.7 of GDP with the manufacturing sub sector accounting for a share of 17.7 per cent of the total GDP. Agriculture accounts for only 11.9 per cent of GDP.
Bilateral economic and commercial relations between India and Sri Lanka have been on an upswing, particularly following the signing of the India-Sri Lanka Free Trade Agreement (FTA) in 1998. In the last 10 years, bilateral trade has grown manifold, and India has emerged as Sri Lanka’s largest trade partner. Growth in the volume of two-way trade has increased from US$600 million in 1998 to US$ 3.2 billion in 2008. An examination of bilateral trade statistics makes it amply clear that the Free Trade Agreement (FTA) has been a win-win for both sides. The basket of items being traded has expanded. Even while both countries suffered from global economic meltdown, still overall trade turnover reached US$ 3267 million in 2008.
This trade expansion is a result of a set of measures incorporated in the FTA, taking into account asymmetries between the two economies and its production base as well as local socio-economic sensitivities and revenue implications. A total of 4150 tariff lines were opened by India at zero duty for imports from Sri Lanka. Sri Lanka opened up 1208 tariff lines at zero duty for Indian exports to Sri Lanka in 2000. Later, it has progressively liberalised its duties to reach zero-level in respect of an additional 2724 tariff lines in November 2008. As of now, 1180 tariff lines remain in the Sri Lankan negative list that includes agriculture/livestock items, rubber products, paper products, iron and steel, machinery, and electrical items. On the Indian side, there are 429 items in the negative list, which include garments, tea plastic and rubber products.
As a result of progressive liberalization of the economy for over three decades, Sri Lanka is considered as an intrinsically friendly destination for foreign investors. So much so that Sri Lanka is ranked as the most liberalized economy in South Asia. The process of trade liberalization and integration of Sri Lanka’s economy with the global economy continues within the positive attributes of free market economy, while upholding the interests of the domestic stakeholders. Investors are provided with preferential tax rates, constitutional guarantees on the safety of the investments, exemptions from exchange controls and 100 per cent repatriation of profits. Total foreign ownership is welcome in almost all areas of the economy, with only a few areas of restriction. Sri Lanka is considered the region’s leading reformer of business regulation. For instance, Sri Lanka has made it easier to obtain credit by strengthening the legal rights regime of credit and access to credit information. Reforms in Sri Lanka are creating a more competitive business environment but with a level playing field.
Attributes which enhance the attractiveness of Sri Lanka to investors include an educated and adaptable workforce, locational advantage and connectivity, access to key markets, the vibrant business environment, and sophisticated legal and regulatory framework. In terms of social justice, Sri Lanka is way ahead with the people enjoying highest physical quality of life in the region, thus minimizing social unrest and enhancing productive capacity. Compared with East Asian countries, Sri Lanka offers greater cost effective opportunities with dedicated Economic Zones and manifested array of incentives.
The Board of Investment of Sri Lanka (BOI) is the central facilitation point for investors. The BOI operates 12 Industrial Zones with all infrastructure facilities provided by the agency. A further 12 new zones, including sectoral ones for IT/BPO, gems & jewellery, textiles and chemicals are being developed under the public-private partnership model. The zones provide investors with suitable sites on long-term lease.
The Government follows an incentivised investment promotion strategy in priority sectors. The BOI promotes diversification of industries and services with special focus on advanced technology and value addition. Likewise, large scale projects such as infrastructure development and initiatives that strengthen the nation’s comparative advantage are favoured.
Indian investments in Sri Lanka have grown significantly since the operationalization of the FTA in 2000. For instance between 1978 and 1995, investments from India accounted for only 1.2 percent of total foreign direct investments in Sri Lanka. In 1998, Indian investments in Sri Lanka amounted to US$ 1.4 million. In 2008, investments amounted to US$ 125.9 million which was 14 percent of total foreign direct investments. By 2007, Indian investments had resulted in over 70 projects and Indian companies have established a strong investment presence in Sri Lanka. They are now among the largest investors in the country.
So far, Indian investments have been in the agriculture and plantation, ICT, telecommunications, manufacturing and hotels sectors and feature prominent Indian names such as IOC, Tata, Bharti Airtel, Piramal Glass, LIC, Ashok Leyland, L&T, Ultratech Cements, Ambuja Cement, CEAT and Taj Hotels. Upcoming Indian investments are expected to be in core sectors such as oil exploration and production, power, IT, telecom sector, hotels and resorts and the development of Special Economic Zones.
Sri Lanka and India share similar cultural and economic environments. This would enable smoother integration of companies from India to Sri Lanka and vice versa. One of the main aspects in this regard is the fact that in Sri Lanka the operational costs are 30% less than in India.
The Government of Sri Lanka has now identified IT, Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) sectors as thrust sectors in its vision to transform Sri Lanka to a premier knowledge hub in South Asia. The specific fields identified in these sectors include financial accounting, banking services, mobile software development and software testing. This sector currently ranks fifth in its export potential and has been growing at a rate of 20 – 25% for the last five years. The potential that this sector holds can be inferred from the fact that Sri Lanka has been placed among the Top 50 Global Outsourcing destinations by AT Kearney and among the Top 20 Emerging Cities by the Global Services Magazine.
Connectivity between India and Sri Lanka is essential to facilitate more commerce and to promote people-to-people contact. Already, 98 flights per week connect Colombo and various cities in India further boosting traditional links of connectivity between the two countries. About 70 percent of Colombo Port’s capacity is utilized for transhipments to and from India while 40 percent of the capacity of Sri Lankan Airlines is mobilized to reach out to India. Greater connectivity with Indian cities will open up immense commercial opportunities for both countries. Agreements to commence a ferry service between Tuticorin in South India and Colombo as well as between Rameshwaram and Talaimannar have now been signed. In my view, it is matter of time before Visakhapatnam and Colombo will be connected by direct flights and perhaps Visakhapatnam and Trincomalee connected by a Ferry service, both for commerce and for pleasure travel. In this context, it is important to promote the proposal presented by the Maldives through the SAARC forum to establish an Indian Ocean Cargo and Passenger Ferry connecting points along the South Asian coastline.
Tourism and pilgrimage forms an important link between India and Sri Lanka. Over 120,000 Sri Lankan, mostly Buddhist pilgrims, visit India every year. More than 125,000 Indian tourists visited Sri Lanka in 2010, that is nearly 20% of the total tourist inflow into the country. A pilgrim visitor tour called a “Ramayana Trail” in Sri Lanka is fast becoming popular among sections of Indian visitors.
After the conclusion of the armed conflict in 2009, the tourism sector in Sri Lanka has shown rapid growth with a nearly 50% increase in arrivals. There is vast potential for investment in infrastructure development opportunities in tourism, particularly in those areas of the country that were hitherto inaccessible due to the conflict. These areas include the scenic and resource-rich Eastern seaboard. Sri Lanka compared to India, is small in size; and visitors to Sri Lanka are often amazed at the variety that this small island holds in terms of land formations, vegetation, climate and animal life. The country’s vegetation and micro-climates extend from sand deserts and groves of coconut palms to grassy highland plateaus and tropical rain forest stretching over steep slopes of mountains. It has been estimated that the island has over 3000 indigenous species of plant life which is three times as many as in the British Isles, an area which is about three times as large. Our island is blessed with 120 waterfalls. These are facts that are little known but Sri Lanka has been listed as one of the World’s 34 official “Biodiversity Hotspots” by Conservation international. Sri Lanka’s rich tropical vegetation has supported a great wealth of animal and bird life. Off the Southern, Eastern and Western coasts one can even watch dolphins and whales. Such diversity packed within just 65,610 square kilometers adorned by a rich cultural heritage and history makes Sri Lanka a paradise for the tourism industry.
Sri Lanka’s strategic commercial advantage due to its close proximity to the shipping lane linking the East and the West has made the Port of Colombo a premier port in the region for a period spanning 120 years. There are four other regional ports in the country, in Galle, Trincomalee, Kankesanthurai and Point Pedro.
The Port of Galle in the South of the country functioned as the main port of entry to the Island until the Colombo port development commenced in 1875. The Trincomalee Port situated on the East coast, is a deep water natural harbor which enjoyed strategic value during the 2nd World War and today the primary base for the Sri Lanka Navy and a commercial production centre which depends on sea transport for source material.
To cope with the ever increasing volumes of port traffic including transshipment, a new port is now being developed in Hambantota in the deep South of Sri Lanka. This port at Magampura in Hambantota is located facing the southern ocean, with direct access to the main international shipping routes, linking the Asia Pacific region with Europe and North America. The short transit time from this port to India, Africa and Upper Gulf as well as to Europe, the Americas and East Asia creates an opportunity to access the expanding markets. This port can be a major gateway to India, and in turn from India to the rest of the world.
Hambantota is planned as a multipurpose, industrial and service port which would provide facilities for transshipment, value addition businesses, storage and distribution in the international transportation network, as well as other port facilities. Along with the establishment of the Port, the entire region of Hambantota is being developed with a new international airport being built in Mattala and the City being promoted as an international Sports and Conference venue as well. The new international cricket stadium in Hambantota was inaugurated during the current Cricket World Cup Tournament last week. Sri Lanka also plans to host the Commonwealth Heads of Government Meeting in Hambantota in 2013 and the City has also submitted a bid to host the 2018 Commonwealth Games.
The natural location of Sri Lanka as in the olden days provides a hub status encompassing many economic activities in the modern evolving economy of the world as well.
The attractions for investors in Sri Lanka also includes its well-developed health system consisting a significant number of hospitals and British qualified specialist doctors and education system consisting international schools and tertiary education institutions. In this context, the efficiencies of the liberalizing economy and a well developed and regulated financial systems with a balanced mix of both local and global players coupled with a very modern and efficient stock exchange as well as excellent rest and recreation facilities make Sri Lanka an attractive investment and trading destination. Sri Lanka has the potential to be a financial and e-banking hub in the region as well. Towards this end, payments and settlement systems and regulations pertaining to finance and banking systems, has been upgraded recently.
As Sri Lanka’s closest neighbour, it is our wish that Indian entrepreneurs and visitors as well will take advantage of the opportunities in Sri Lanka and play a leading role to ensure that the bonds between our two nations and our people are strengthened further. We are confident that high growth in each other’s economies will benefit both due to close proximity and common ethics and governance traditions. We are confident that in the Asia’ march of progress in this century, both our countries will be in the lead ,complementing each other.